Indian central bank liquidity move may lift bonds

Indian government bonds were expected to open the week higher, according to Business Recorder, after the Reserve Bank of India launched a reverse repo operation running 30 days at a variable rate, valued at 7 trillion rupees ($74.09 billion), with an early redemption option. Traders expect the benchmark 6.94% 2036 bond to trade between 6.94% and 6.99%, having closed the previous session at 6.9625%.

A trader at a private bank said the central bank's step should encourage some buying, though global developments would limit any large rally. Liquidity in the banking system climbed above a record 10 trillion rupees, boosting demand for shorter-dated debt after bigger than expected inflows through the RBI's special schemes.

Oil prices stayed elevated, with Brent crude holding above $96 a barrel as hostilities between the United States and Iran targeting ships in the Strait of Hormuz raised fears of a lengthy supply disruption. Brent had risen 7.8% over the previous week. Costlier energy squeezes big importers such as India, and a prolonged increase could hurt its inflation outlook and public finances. Elsewhere, the 10-year US Treasury yield was near 4.78% in Asian trade as bets grew on a 25-basis-point Federal Reserve hike next week after strong employment data.